Robust 3Q08 results. First Resources (FR) released a decent set of 3Q08 results. YoY revenue growth was up 50.8%, bringing its 3Q08’s revenue to IDR636b from IDR422b. This can be attributed to an increase in sales volume as well as average selling prices of CPO and PK. Gross profit margin improved from 57.5% in 3Q07 to 67.6% in 3Q08, reflecting the sensitivity of CPO price increases on FR's profitability. PATMI also improved 117% YoY from IDR93.5b to IDR202.9b in 3Q08.
Large proportion of debt are non current in nature. We are comforted by the fact that 99% of borrowings/ debt securities repayable (about IDR1.9t) are non current in nature. This allows management some time before repayment is due, to pay extra attention to financial liquidity and cost management issues.
Low cash cost of production. Not all is gloom and doom – FR has managed to maintain a relatively low cash cost of production of US$200/tonne (for nucleus) for 9M08, in spite of a rising cost environment. This low cash cost of production would put them in good stead to weather the upcoming headwinds of low CPO prices, tight credit conditions amid a slowing economic environment.
CPO price assumption revised down, new fair value of S$0.36. Current CPO futures’ prices (Nov delivery) is RM1,625/tonne. However, it has hovered in the RM1,400–1,500/tonne range prior to the recent rebound. With the deteriorating global economic front and crude oil prices currently hovering the US$60-70/bbl range (versus its peak of US$147/bbl in July), we opt to be cautious and revise our CPO price assumption to RM1,500/tonne, down from
RM2,600/tonne previously.
Reflecting the change in our CPO price assumption, our FY09F revenue has been adjusted to IDR1.6t (from IDR2.4t, -32.9%). In addition, earnings for FY09F has also been adjusted to IDR501b (from IDR856b, -41.5%). We have also projected a conservative 5% YoY growth of CPO production in FY09, against FY08’s 10% YoY growth from FY07. This is due to management‘s disclosure that they had observed some form of biological tree stress in 3Q08 – the YoY FFB growth in 3Q08 was only approximately 4%, as compared to prior quarters’ double-digit YoY growth. This is attributable to the high output in the last 12 months. As it is uncertain at this point in time whether this significant reduction in FFB growth rate is short term or longer term in nature, we have decided to err on the side of caution and cut our YoY growth rate by 5 ppt.
At this point in time, we are maintaining our P/E valuation matrix of 7x our FY09F earnings (7x being the average of 10-year historical low P/E valuation for Indonesian and Singapore listed plantation companies). Taking into account the above revisions, we derive a new fair value of S$0.36 for FR (from S$1.00 previously). We downgrade the stock from buy to neutral.
source:dmg
The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned
To my beloved friend CW8888
1 year ago
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